Rise of American Accounts. "Hollywood. "

Direct Tax

TYPES OF PERKS.

Perks can be divided into three categories.

A. Perks exempted for all employees :

B. Perks taxable for all employees :

C. Perks taxable only for specified employees.

A. Exempted From Tax

Value of following benefits is not added in salary income :

A-1. Free medical facilities or reimbursement of medical expenditure : Exemption under this section shall be allowed for treatment of self, wife, dependent children, dependent parents and dependent brothers and sisters.

A-2. Free refreshment suppplied by employer to its employees during office hours in office premises except free meals is fully exempted.

A-3. Free meals given at remote area or offshore installation shall be fully exempted.

A-4. Free recreational facilities provided by employer to its employees is fully exempted.

A-5. Provision of telephones including mobile phones given by the employer to employee to facilitate the business of the employer is fully exempted.

A-6. Free education which is provided by employer from its own resources who is engaged in such business provided value of such benefit does not exceed Rs1000 p. m. per child is fully exempted.

A-7.Cost of refresher course attended by employee met by employer. In case employer meets expenditure of higher education or training whether in India or abroad is fully exempted.

A-8. Any rent-free residential accommodation to Judges of High Court or Supreme Court is fully exempted.

A-9. Goods sold by an employer to his employees at concessional rate. The amount of concession given is fully exempted.

A-10. Free ration received by members of armed forces is fully exempted.

A-11. Perquisites allowed by Govt. to its employees posted abroad is fully exempted.

A-12. Rent free house given to an officer of Parliament, a Union Minister, and leader of opposition in Parliament is fully exempted.

A-13. Conveyance facilities to Judges of Supreme Court and High Court is fully exempted.

A-14. Free conveyance provided by employer to employees for going to or coming from place of employment is fully exempted.

A-15. Any amount contributed by employer towards pension or deferred annuity scheme is fully exempted.

A-16. Employer's contribution to staff group insurance scheme is fully exempted.

A-17. Computers, laptops given to [ no transferred ] an employee for official / personal use is fully exempted.

A-18. Transfer of a moveable asset [ computer, car or electronic items ] without consideration to an employee after such asset had been used by the employer for more than 10 years is fully exempted.

A-19. Accident insurance premium paid by employer for his own benefit is Fully exempted. In case such premium is paid for an insurance whose benefit is to accrue to the employee, it will be taxable.

A-20. Interest free loan

(a) In case total amount of all loans taken by an employee from his employer does not exceed Rs 20,000 is fully exempted.

(b) In case loan is taken for treatment of notifies illness [ Aids, cancer, mental disorders, renal failure, hemophilia, thelessemia ] and no claim is received from insurance company is fully exempted. In case any insurance claim is received, such amount shall be treated as loan and difference between rate of interest charged by employer and rate fixed by SBI on 1-4-2015 shall be taxable.

(c) In case loan is taken for any other purpose and rate of interest is equal to or higher than the rate prescribed by SBI on 1-4-2015 is fully exempted.

A-21. Income tax on perquisite if paid by employer is fully exempted.

A-22. Any unauthorised use of a benefit is fully exempted.

.Taxation of Employee's Stock Option ( ESOPs)

Since FBT has been abolished, so w.e.f. assessment year 2010-11 the value of this benefit will be taxable as perquisite in the hands of the employee .

B. Perks Taxable For All Employees.

B-1. Rent Free House [ Section 17(2)(1) Rule 3(1) as amended by notification No. 94 / 2009 dated 18-12-2009 ]

Before calculating the value of rent free house, following information is collected :

1. Nature of employment : Govt., Semi Govt. or any other.

2. Place where rent free house is provided :

All cities, towns have been divided into 3 categories depending upon their population as per census of 2001 as under -

(A) All cities, towns having population exceeding 25 Lakhs.

(B) All cities and towns having population exceeding 10 lakhs but not exceeding 25 lakhs.

(C) All other cities, towns having population of 10 lakhs or less than 10 Lakhs.

3. Meaning of accommodation. It shall include a house, farm-house, flat, hotel accommodation, guest house, a caravan, mobile home, ship etc.

Exempted accommodation : For an employee who is working

(a) in remote area [ an area located at 40 kms, away from city limits of a town whose population is up to 20,000 as per latest census ] at mining site : or at project execution site : or

(b) in offshore area [ there is no limit as regard to distance ] such accommodation shall be exempted.

(c) Value of rent free accommodation is not taxable, if rent free house has been provided to Supreme Court and High Court Judges, Union Minister, Leader of Opposition and Official of Parliament.

More than one accommodation : In case a person is allowed to retain more than one accommodation, for first three months value of one such house having lower value shall be taxable. If such accommodation is retained for more than three months thereafter value of both such houses shall be taxable.

Hotel accommodation : An employee may be provided hotel accommodation ( including motels, guests houses, etc.) on his transfer. It is treated in following manner :

(a) If hotel accommodation is provided for a total period not exceeding in aggregate 15 days in a previous year, it shall be fully exempted.

(b) If hotel accommodation is provided for a period exceeding 15 days the perk shall be taxable in following manner :

(1). Calculated salary for rent free house as given below :

(2) Compute salary for number of days he stayed in the hotel :

(3) Calculate 24% of this salary :

(4) Compare it with actual bill paid by employer to the hotel for such accommodation :

Whichever is less is taxable.

Note. In case hotel accommodation is provided for more than 15 days then this perquisite is not taxable for first 15 days and it will be taxable for remaining days.

4. Nature of accommodation. Owned by Employer / Hired or leased by employer.

5. Meaning of Salary :

For the calculation of value of rent free accommodation, the word ' salary ' includes :

(1) Basic salary, pay or wages.

(2) Dearness Pay, Dearness Allowance if term of employment so provide or it enters into salary for calculation of value of service or retirement benefits.

(3) Commission.

(4) Bonus.

(5) Fees.

(6) Value of all taxable allowances.

(7) Any other monetary payment, which is chargeable to tax ( by whatever name called)

(8) Leave encashment of salary only if it pertains to the leave earned during the previous year in which rent free house is provided to the employee.

Salary does not include the following :

(1). Dearness allowance if not paid as per terms of employment or if it does not enter into salary for computation of all retirement.

(2). Any other allowance which is a exempt one.

(3) Employer's contribution in employee's provident fund.

(4) Value of other perquisites falling u/s 17(2) .

(5) Leave encashment of salary if it relates to the leave earned in earlier previous years.

(6) Income tax of employee if paid by employer.

For the calculation of value of rent free accommodation, all components of salary which are included in the term ' salary ' are to be taken on accrual basis.

If employee is simultaneously working with more than one employer :

Salary ( as defined earlier) received from all such employers shall be taken into account while calculating salary for the calculation of value of rent free accommodation.

Salary from all employers should be in respect of the period for which accommodation has been provided.

Pension after retirement is treated as salary income and so it will be included in salary received from present employer for calculation of value of rent free accommodation.

B-2. In case accommodation is provided as concessional accommodation [ Sec. 17(2)(2) Rule 3(1) as amended by notification No. 94/ 2009 dated 18-12-2009 ]

Accommodation at Concessional Rent means that employer has given a house to his employee for which he is charging a part of the rent or employee is paying a part of the rent and thus employee is enjoying a perquisite the valuation of which shall be made as under.

First of all calculate the value of the house as if accommodation provided by the employer is totally free, i.e., employer has not charged any rent for the accommodation provided to the employee.

After calculating value of rent free accommodation, deduct the amount of rent charged by the employer for that accommodation.

After deducting the amount of rent paid by employee, the balancing amount ( if it is positive figure) if any, shall be treated as value of concessional accommodation.

Note. In case the balance amount is negative, then the value of concessional accommodation shall be nil.

B-3. Obligation of employee met by employer [ Section 17(2)(4) ]

In case any of the following payments are made by employer these are fully taxable. These are :

(a) Gas and electricity bills issued on the name of employee but paid by employer - actual expenses met by employer are taxable.

(b) Education of Children bills issued on the name of employee but paid by employer - actual expenses met by employer are taxable. Reimbursement of tution fee of children is also fully taxable.

(c) Income-tax, Professional tax of employee paid by employer - actual expenses met by employer are taxable.

(d) Salary of domestic servants employed by employee but paid by employer - actual amount paid by employer is taxable.

Note. There can be many other examples of obligation of employee met by employer.

B-4. Sum payable by the Employer directly or through a fund to effect an assurance / an annuity [ Section 17(2)(5) ]

Any sum payable by the employer for employee shall be treated as perk to employee if :

(a) the amount is payable by the employer to effect an assurance on the life of the assessee : or

(b) the amount is payable by the employer to effect a contract for an annuity for employee.

Note. (1) The sum so payable may be either directly or through a fund.

(2) If the sum is payable through a recognised provident fund or an approved superannuation fund, it shall not be treated as taxable per for employee.

B-5. Any specified security or sweat equity shares allotted or transferred to employee [ Section 17(2)(6) ] [ w. e. f. 1-4-2009 ]

The value of any specified security or sweat equity shares allotted or transferred by the employer or former employer to the employee either free of cost or at concessional rate shall be treated as perk to employee. Such transfer to employee may be direct or indirect.

Note. If the specified security or sweat equity shares are allotted to employee / former employer at concessional rate, the value of perk shall be the amount of concession granted. Thus, any amount charged / recovered by the employer from the employee shall be reduced from the fair market value of security or sweat equity shares.

Value of Perk = [ F. M. V. of specified security or sweat equity shares on the date on which option is exercised by the employee ] less [ Amount charged or recovered from the employee ]

(a) Meaning of Specified Security. ' Specified Security ' means the securities as defined in Section 2(h) of the Securities Contracts ( Regulation) Act, 1956 and, where employee's stock option has been granted under any plan or scheme therefore, includes the securities offerred under such plan or scheme.

(b) Meaning of Sweat equity shares. ' Sweat equity shares ' means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know - how or making available rights or value additions, by whatever name called.

(c) Meaning of ' Fair Market Value ' . It means the value determined in accordance with the method as may be prescribed.

(d) Meaning of option. It means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a pre - determined price.

(e) Year in which taxable. The value of this perk is taxable in the year in which shares or securities are allotted or transferred to the employee but it's fair market value shall be calculated on the date on which the employee exercises the option.

B-6. Contribution to an approved superannuation fund by the employer [ Sec. 17(2)(7) r. w. Rule 3(7) ]

The amount of any contribution made by the employer to an approved superannuation fund in respect of the assessee (employee) shall also be taxable as perk to employee to the extent it exceeds Rs 1,00,000.

Thus, if an employer contributes Rs 1,30,000 towards an approved superannuation fund of an employee, Rs 30,000 shall be taxable as perk for the employee.

B-7. Value of any other prescribed fringe benefits or amenities [ Section 17(2)(8) r. w. Rule 3(7) ]

The following benefits or amenities have been prescribed u/s 17(2)(8) :

B-8 (1). Interest free or Concessional loan from employer [ Rule 3(7)(1) ]

Interest free or interest charged at a concessional rate or loan given by employer to an employee or any member of his/her family is a perquisite given to an employee which is chargeable to tax. Valuation of this perk shall be made keeping in mind the following points -

(1). Interest is to be calculated at the rate charged by State Bank of India on similar type of loan as on the 1st day of the relevant previous year. State Bank of India notifies the lending rates from time to time.

(2). Interest is to be calculated for each month of the relevant previous year on the ' maximum outstanding monthly balance '.

(3) Interest paid by employee ( or charged by employer) , if any, is to be deducted out of total interest for the full previous year calculated as above.

(4) 'Maximum Outstanding Monthly Balance ' means the amount of each loan due to the employer on the last day of each month. This means that in case any amount of loan has been repaid in any month the same is to be deducted and only the balance amount due to the employer shall be known as maximum outstanding monthly balance.

(5). For the assessment year 2016 - 2017, interest rates charged by State Bank of India as on 1 - 4 - 2015 shall be applicable.

Important Points

(1) Meaning of housing or conveyance loan. [ CBDT Circular No. 15 dated 12 - 12 - 2001 ] . For the purpose of valuation of this perk, housing loan or conveyance loan means loan for the acquisition of a new house or car and not for the repairs of the house or car. Acquisition includes purchase or construction.

(2) Loan against Provident Fund. This loan is not provided by the employer and hence not a perquisite to an employee.

(3) Cases when this perk is exempt

(a) Where the total amount of loan or loans given by an employer to an employee does not exceed Rs 20,000.

(b) Where the loan is given for medical treatment of diseases specified in Rule 3A for employee or any member of his family. However this exemption shall not be available upto the amount of loan reimbursed to the employee under any medical insurance scheme.

B - 7 (2) Valuation of Perk in respect of Travelling, Touring, Accommodation.

In case employer is spending money to provide these amenities to the employee the valuation of this perk shall be made as under :

(a) Where these facilities are provided to all the employees. Find out the amount spend by the employer to provide these facilities to its employees and deduct any amount recovered from the employee and balance, if any, shall be taxable value of the perk.

(b) Where these facilities are not provided to all the employees. In case employer has provided these facilities only to the selected few then find out the value at which these facilities are offered by other agencies to the general public and deduct any amount recovered from the employee and the balance amount, if any, shall be the taxable value of this perk.

(c) Extention of official tour as vacation. If an employee is on an official tour and it is extended as a vacation by the employer, the value of perquisite shall be taken only for the extended period.

B - 7 (3) Food or Beverages Facility.

If employer provides free food and non-alcoholic beverages to an employee, it shall be treated as perk for this purpose. However, the amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

Thus,

Value of Perk = ( Amount spent by employer) less ( Amount charged / recovered by employer from employee)

. Cases when Food and beverage facility is Exempt.

(1). Free food or non-alcoholic beverages provided by employer during working hours provided in a remote area or an off-shore installation.

(2) Tea or snacks provided during working hours.

(3) Food or non-alcoholic beverages provided by employer during working hours at office or business premises or through paid vouchers which are non-transferable and usable only at eating joints, shall be exempt upto Rs 50 per meal. However, if the cost per meal exceeds Rs 50 then excess shall be taxable as perk for employee.

B - 7 (4) Valuation of Perquisite in respect of Gift Voucher or Token.

Gift or gifts in kind from an employer of an aggregate amount of Rs 5,000 in a previous year shall be exempted and excess if any is taxable. However, any amount of gift received in cash or convertible into money is fully taxable. So cash gift may be less than Rs 5000 or more, it is fully taxable in the hands of the employee. But if an employee. But if an employee gets a gift of Rs 20,000 in-kind, only Rs 15000 shall be chargeable to tax.

B - 7 (5) Valuation of Perquisite in respect of Credit Card.

Taxable value of the perk shall be the amount spent by the employer to provide this type of facility to the employee or any other member of his household. The expenditure by employer shall also include membership fee and annual fee of the credit card.

B - 7 (6) Valuation of Perquisite in respect of Club Facility.

In case employee or any other member of his household enjoys the facilities provided in a club and the expenditure for the same is met or re-imbursed by the employer the taxable value of his perk shall be equal to the amount spent or re - imbursed by the employer.

Value of Perk = [ Amount spent by employer ] less [ Amount charged / recovered by employer from employee ]

Cases when club facility is exempt.

(1) Club facility used in connection with official work or for business purposes if such expenditure is incurred wholly and exclusively for business purposes and the following conditions are fulfilled :

(a) Complete details in respect of such expenditure are maintained by the employer which may include the date of expenditure, the nature of expenditure and it's business expendency :

(b) The employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

(2). Health club, sports club or similar club facility provided uniformally to all employees by the employer.

(3) Initial membership fee where the employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household.

B - 7 (7) Use of moveable assets.

In case employee or any other member of his household is using any movable asset owned by the employer except computers and laptops - actual benefit derived by employee is taxable i.e., 10% of cost of that asset is taxable. In case the period for which asset is given for use to employee is less than full year, the value of benefit shall be calculated by taking actual number of days for which asset is used by total number of days of that financial year.

B - 7 (8) Transfer of moveable assets to the employee.

Taxable value is to be calculated by charging depreciation at the following rates :

(1) Electronic Items 50% p. a. on WDV basis.

(2) Motor car or other conveyance 20% p. a. on WDV basis.

(3) Any other item 10% p. a. on actual cost basis.

Taxable value of this perk = [ Actual cost to the employer ] less [ Normal wear and tear of the asset ] less [ Any amount paid by employee or recovered from him ]

Electronic item here means data storage and handling devices like computer, digital diaries and printers. They do not include household appliances like washing machines, microwaves, ovens, mixers, etc.

Depreciation is to be charged on year to year basis i.e., period of 12 months to be counted from date of acquisition.

B - 7 (9) Any other benefit or amenity provided by employer [ Rule 3(8) ]

In case employee has been provided any other benefit, amenity, concession, privilege etc. by the employer, it is fully taxable. Valuation of this type of benefit shall be calculated on the basis of the cost to the employer and not the market value and of course reduced by any amount paid by employer.

C. Perks - Taxable in Specified Cases Only [ Section 17(2)(3) and Rule 3 ]

Meaning of specified employee [ Section 17(2)(3) ]. An employee is said to be a specified employee in any of the following cases :

(a) If he is director of the company : or

(b) he has substantial interest in the affairs of the company i.e., he holds at least 20% of the voting power ( equity shares) in the company : or

(c) his monetary annual salary income is more than Rs 50,000 p. a.

Salary for this purpose means all what he gets in cash from one employer or more than one employer if he works for more than one employer simultaneously whether full time or part time, and is taxable under the head salary. The total of these items is to be treated as gross salary out of which deductions u/s 16(2) and (3) are to be allowed.

Monetary Salary includes :

1. Basic Salary.

2. D.A./D. P. /A. D. A.

3. Bonus, Commission, Fees and all taxable allowances or taxable portion of an allowance.

4. Any perquisites received in cash or in monetary form.

5. Gratuity, Pension, Leave Salary but arrears of salary and salary received in advance is to be excluded.

6. In case employee is working simultaneously with more than one employer , salary from all the employers is to be included.

7. Monetary annual salary income Rs 50,000 shall be calculated after allowing deductions u/s 16(2) and 16(3) .

C-1. Valuation of Perquisite of Motor Car or any Other Automotive Conveyance [ Rule 3(2) ]

In case employer had provided a car or any other vehicle for the private use of the employee or any other member of his family, it is a perquisite which is taxable in the hands of the employee provided he/she is a employee of a specified category.

The valuation of this perk shall be made as under :

A. Motor car is owned or hired by employer and its running and maintenance expenses are met or reimbursed by employer.

(1) Car is fully used in the performance of official duties of the employee. When car is used for official work only and the employer or his family is not deriving any benefit, so no perk will be considered in this case. In this case employer is required to maintain complete record of journeys undertaken like date of journey, destination, mileage, amount spent etc. so a log book is required to be maintained. Employer is also required to give a certificate that the expenditure on car had been incurred wholly and exclusively for official work.

Value of Perk = Nil

Note. It does not matter whether the cubic capacity of engine of motor car exceeds 1.6 litres or not.

(2) Car is fully used for the private, personal or family purposes of the employee. When employee or any member of his household is fully using the car for their private / family purpose, so it is a perk taxable in the hands of the employee.

Value of Perk = (Actual expenses incurred by the employer on running and maintenance of car) add ( Salary of chauffeur) add ( Normal wear and tear of car, 10% of actual cost) less ( Any amount charged by employer from employee).

C-2. Perquisite of Free domestic servants [ Rule 3(3)]

In case employer has provided the free services of a sweeper, a watchman or a personal attendant, the taxable value of this type of perquisite shall be the actual cost to the employer i.e., salary etc. paid or payable by employer to these servants. In case any amount is paid by the employee for these services then the value of perquisite shall be reduced by such amount.

Value of Perk = [ Amount spent by employer ] less [ Amount charged / recovered by employer from employee ]

Case when this perk is taxable in case of all employees. In case these domestic servants are engaged by the employee and their salary etc. is paid or reimbursed by the employer, the value of these perks is taxable in the hands of all types of employees whether specified or non-specified because the liability of employee has been paid or reimbursed by the employer. It is so because in this case, it becomes obligation of employee met by employer as per Section 17(2)(4). But in case these servants are engaged by employer and then their services have been provided free to the employee, the value of perk will be taxable in the hands of a specified employee only.

C-3. Perquisite in respect of free supply of gas, electric energy, water supply [ Rule 3(4) ]

In case employer has purchased gas, electric energy or water supply from an outside agency, the taxable value of this perk shall be equal to the amount paid by employer to the outside agency.

Where the employer owns these services and provides free to its employees, the taxable value of this perk shall be the actual cost of these services to the employer.

In case employee pays some part of the cost to the employer or employer recovers a part of this cost from the employee, the amount so paid by employee shall be deducted and only the balance amount shall be the taxable value of this perk.

Value of Perk = [ Amount spent by employer ] less [ Amount charged / recovered by employer from employee ]

Case when this perk is taxable in case of all employees. In case gas, electricity or water supply connection is taken in the name of the employee and bills for the same is paid or reimbursement by employer, the value of the perk is taxable in the hands of all categories of employees whether specified or non-specified. But if these connections are taken in the name of the employer but given free to the employee, the value of this perk will be taxable in the hands of specified category of employees.

C-4. Free educational facilities to children of employee's household [ Rule 3(5) ]

(1) Payment or reimbursement of fees of school, college, etc. In case school or college fees of family members of employee is paid by the employer directly to the school or college or fee paid by the employee is reimbursed by the employer, it is a taxable perquisite whether the employee is a specified or non-specified type of employee.

(2) Educational facilities in a school or college maintained by employer ( Employer's Institute). In case school, college etc. is run or maintained by the employer and free educational facilities are given to the children of employee or any other member of his household, the valuation of this perk is to be calculated.

(3) The value of this perk is taxable only where the employee falls in a specified category but in case bills are issued in the name of the employee and the same are paid or reimbursed by the employer then the value of this perk is taxable in all cases as the liability of the employee has been met by employer.

Note. Education facility provided to employee is not taxable.

C-5. Facility of free or concessional private journey to an employee by the employer engaged in the carriage of passengers or goods [ Rule 3(6) ]

If an employer who is engaged in the carriage of passengers or goods provides the facility of personal / private journey either free of cost or at concessional rate to any employee or to any member of his household, the value of perk shall be taken to be the value at which such benefit or amenity is offered by such employer to the public.

However, if employer charges / recovers any amount from the employee for such facility then such amount shall be deducted while calculating the value of perk.

Value of Perk = [ Normal freight or fare chargeable from public ] less [ Amount charged / recovered from employee ]

In case this facility is provided to an employee of railways and airlines, nothing shall be chargeable to tax.

Conveyance facility provided to the employee for journey between office and his residence is also not chargeable to tax.

Note. The facility of private / personal journey to employee may be provided in any conveyance whether owned by employer or taken on lease by employer.

C-6. Medical Facilities.

Medical facilities other than exempted are taxable in the hands of ' specified employees '. However, medical facility in the form of reimbursement by employer is taxable in the hands of all employees u/s 17(2)(4).